Price Action: Trading Broad Bear Channels (Part 1)

Major highs are what matter.

As long as this bear trend continues to form a series of
major lower highs,
it is still a bear trend.

The market is in a bear trend,
so traders should look for shorting opportunities,
especially going short at reversal points after rallies.

When the market is in a broad bear channel,
do not chase and sell at lows.
Instead, wait for a pullback to the middle third of the previous down leg to go short.

You can also go short on reversals after a breakout above a short-term minor lower high.

Sometimes the market will break above a major lower high and reverse.
At that point, the market may enter a trading range
or may reverse into a bull trend.

However, if the market then quickly and strongly declines,
the market re-enters an "Always In Short" state,
and it is either still a trading range or back in a bear trend.

Even if the market briefly breaks above a major lower high,
it may just be making the channel broader.
The trend essentially still exists.

If the market is in a bear trend,
80% of reversal attempts will fail.

Therefore, rather than going long on these reversals,
it is better to wait for these reversals to fail and then go short.

All trends have inertia.
A broad bear channel is not as strong as a tight bear channel,
and even less strong than a breakout move.

But most reversal attempts will fail,
and most bottoming attempts will also fail.

The market is in a bear trend.
It keeps trying to form a bottom,
but each reversal either becomes a bear flag and continues down,
or becomes a trading range that mostly ends up resuming the decline.

Bulls see a wedge bottom, a double bottom,
a higher low major trend reversal,
another higher low reversal,
a lower low major trend reversal,
an expanding triangle bottom,
and many small wedges and triangles.

Bulls keep looking for reasons for a reversal,
but most reversal attempts will fail.

But when the channel is this tight,
the first upward reversal is very likely minor
and will not go very far.

Bears are waiting for these reversals to fail.
They will go short again when the bear trend resumes,
waiting for a downward reversal to begin before entering short,
or they simply continue to hold their short positions with a wider stop loss.

The market starts reversing down, then reversing down again, then reversing down again.
Bears go short during these declines,
betting the market will resume the broad bear channel —
in other words, they believe the market will at least make a new low.

They go short here, believing the market will at least make one more new low.

All broad channels spend a lot of time in consolidation,
so at this point the market is both in a bear trend,
in a broad bear channel,
but also possibly in a trading range
or even an early bull trend.

A higher low major trend reversal, accompanied by a strong rally reversal.

The market may simultaneously be in a trading range, an early bull trend,
or a continuation phase of the bear trend.

Once the market breaks above any major high or low,
it is no longer a bear trend.
At that point it is either a bull trend or a trading range.

However, if it once again quickly and strongly reverses down,
then the market is back in a bear trend or trading range,
and the bull trend has also ended.

Whenever the market is in a bear trend,
it frequently produces strong upward reversals,
breaking through the top of the channel — the bear trendline,
and then reversing down again.

You can draw new trendlines,
and these trendlines will become increasingly flat and the channel increasingly broad.